Off-grid communities lack crucial investment
Rural households without access to their country’s national grid receive less than one percent of the funding needed to develop alternative off-grid renewables, a report published in June 2016 by the
International Institute for Environment and Development
(IIED) shows. Global decentralised energy access requires around US$23 billion from climate funds, yet only US$51 million is currently allocated to providing rural homes with cooking fuels and solar energy, the report says. The amount represents just 0.2 percent of what is needed to provide energy access worldwide. Between 2003 and 2015, approved international public climate financing reached US$14.1 billion, with only US$475 million – a mere 3.5 percent – earmarked for small off-grid projects. Farming communities in countries such as
Tanzania
and
Bangladesh
that are based outside the population’s central energy supply meanwhile struggle to maintain domestic livelihoods. “It’s quite unpredictable how grid extensions take place and it’s not always planned, depending on a country’s political process,” said Neha Rai, Senior Researcher for the IIED’s Climate Change Group. “Decentralised energy access is a way of finding a solution in the meantime. Most of the rural parts of developing countries are not connected to a grid, so they require some form of energy, particularly in Sub-saharan Africa and South East Asia.” Around two-fifths of the population of Bangladesh remain disconnected from the country’s main grid. In response, intermediaries such as the
Infrastructure Development Company Limited
(IDCOL) provide solar home systems now common in four million of Bangladeshi households. IDCOL, an agency that selectively channels financing to small-scale projects, has found its success in blending grants and loans to support off-grid renewables, creating a new energy market. But private sector investments in rural energy access remain low. The IIED’s report links the struggle to micro-finance energy access in developing countries with a tendency among investors to avert risk, coupled with a wider knowledge gap on specific markets that could benefit from having their projects micro-financed. Because small projects come with high transaction costs, most institutional investors, banks and developing institutions favour larger investments that require less due diligence and offer higher returns. In September 2015 for example, the African Development Bank (AfDB) provided a €121.5 million loan in September 2015 to boost electricity access and clean energy in Gambia, Guinea, Guinea-Bissau and Senegal (known as the OMVG region). The
OMVG Energy Project
, funded with €937.5 million from big donors including the World Bank, the European Investment Bank and the Exim Bank of China, centres on the construction of a 128 megawatt hydro-electricity dam, as well as a network of power lines able to send 225 kilovolts across West Africa. The project aims to raise electricity access rates from between 20 percent to 75 percent across the region by 2020. Projects of this scale however do not meet the immediate challenges of communities living without access to a wider grid. The OMVG Energy Project planning document even cites
complications expected in the construction phase of the hydropower plant
, such as “the displacement of the communities of the reservoir area, implications for the health of these communities and the workers, loss of farmland and lack of means of crossing the river in the dry season”. Special purpose vehicles (SPVs) such as IDCOL represent a viable alternative, but securing future investment from the big players remains, according to Rai, a problem of weighing short-term gains against long-term market creation and social development. “I think what’s needed is more patience capital. To invest in off-grid projects, the private sector needs to go out of its comfort zone and invest in projects that may be less profitable in the beginning but offer access to longer term markets and socio economic benefits,” she added.
By Jack Aldane
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Photo: Russell Watkins, Developing Pictures